Finding 508266 (2023-002)

Material Weakness Repeat Finding
Requirement
P
Questioned Costs
-
Year
2023
Accepted
2024-11-18

AI Summary

  • Core Issue: The City mismanaged federal grant reporting, leading to material misstatements in financial statements and the Schedule of Expenditures of Federal Awards.
  • Impacted Requirements: The City failed to follow generally accepted accounting principles by recording grant activity on a cash basis instead of the required accrual basis.
  • Recommended Follow-Up: Implement reconciliations for grant activity on a per grant basis to ensure that grant revenue matches expenditures and complies with Uniform Guidance.

Finding Text

Finding #2023-002 – Internal Controls over Federal Grant Reporting Department of Housing and Urban Development ALN 14.228 – Community Development Block Grants / State’s Program and Non-Entitlement Grants in Hawaii Pass Through Payments from the New Hampshire Community Development Finance Authority Department of Transportation ALN 20.106 – Airport Improvement Program Pass Through Payments from the New Hampshire Department of Transportation Criteria or specific requirement: The City’s management is responsible for the presentation of financial statements in accordance with generally accepted accounting principles. In addition, the City’s management is responsible for the preparation of the schedule of expenditures of federal awards. Condition: The City received a significant amount of grant funding during the year ending June 30, 2023 including federal funds that were received in advance. Material audit adjustments were required impacting both grant receivables and grant revenue. In addition, previously recognized grant expenditures were adjusted from the current year activity. Cause: The grant activity was primarily recorded on the cash basis in the general ledger, which is not consistent with generally accepted accounting principles. Effect or potential effect: The controls over the financial activities of the City’s grants are weakened. The preliminary federal grant activity was materially misstated within the basic financial statements and in the Schedule of Expenditures of Federal Awards. The failure to reconcile the grant activity through the general ledger increases the risk that errors may occur and remain undetected. Identification as a repeating finding: This was reported as Finding #2022-002 in the June 30, 2022 financial statements. Questioned costs: None. Context: The City expended in excess of $750,000 in federal awards and assistance during the year ending June 30, 2023 requiring a compliance audit in accordance with the Uniform Guidance. The recognition of expenditures and the applicable federal revenue in the general ledger was not properly reconciled at the individual grant level. Recommendation: We recommend that grant activity be reconciled on a per grant basis. Grant awards are for a specified amount; therefore, grant revenue should agree with the corresponding grant expenditures. We further recommend that all federal award expenditures be reported on the Schedule of Expenditures of Federal Awards in accordance with the Uniform Guidance. Views of Responsible Officials: The City’s management concurs with this audit finding.

Corrective Action Plan

Finding #2023-002 – Internal Controls over Federal Grant Reporting Description of Finding: The City received a significant amount of grant funding during the year ending June 30, 2023, including federal funds that were received in advance. Material audit adjustments were required to increase grant receivables, record an advance from grantors, and increase grant revenue. The grant activity was primarily recorded on the cash basis in the general ledger, which is not consistent with generally accepted accounting principles. Statement of Concurrence or Nonconcurrence: Concurrence Planned Correction Action: A new Finance Director was hired in March 2024 to replace the outgoing employee. A new City Treasurer was hired in June 2024 to replace the outgoing employee. The Finance Director has met with Department Heads and the Treasurer to review grants. We are balancing the current grants the best we can with the information provided. Starting with new grants and projects we are assigning project numbers to isolate information for balancing purposes. Training on the BS&A software, with specific attention to grants and projects, has been scheduled for December 2024. We are also creating receivable invoices when requesting grant reimbursement to track the funds received. We are setting up a schedule for grant review quarterly. A consultant specializing in State and Federal Grant reporting has been engaged to assist the Finance Department in addressing any weakness in grant accounting identified by the auditor. We will be preparing a grant policy for the council to review and adopt in the coming months. Anticipated Completion Date: 06/30/2025

Categories

Reporting

Other Findings in this Audit

  • 508267 2023-002
    Material Weakness Repeat
  • 508268 2023-002
    Material Weakness Repeat
  • 508269 2023-002
    Material Weakness Repeat
  • 508270 2023-002
    Material Weakness
  • 508271 2023-002
    Material Weakness
  • 508272 2023-002
    Material Weakness
  • 508273 2023-002
    Material Weakness
  • 508274 2023-002
    Material Weakness
  • 508275 2023-002
    Material Weakness
  • 1084708 2023-002
    Material Weakness Repeat
  • 1084709 2023-002
    Material Weakness Repeat
  • 1084710 2023-002
    Material Weakness Repeat
  • 1084711 2023-002
    Material Weakness Repeat
  • 1084712 2023-002
    Material Weakness
  • 1084713 2023-002
    Material Weakness
  • 1084714 2023-002
    Material Weakness
  • 1084715 2023-002
    Material Weakness
  • 1084716 2023-002
    Material Weakness
  • 1084717 2023-002
    Material Weakness

Programs in Audit

ALN Program Name Expenditures
66.468 Drinking Water State Revolving Fund $584,035
20.106 Airport Improvement Program, Covid-19 Airports Programs, and Infrastructure Investment and Jobs Act Programs $66,207
20.205 Highway Planning and Construction $40,283
14.228 Community Development Block Grants/state's Program and Non-Entitlement Grants in Hawaii $1,500
21.027 Coronavirus State and Local Fiscal Recovery Funds $20